National Culture and Bank Deposits

This paper investigates the relation between national culture and bank deposits. Using annual data (1995-2015) for 99 banks that participated in the 2014 stress tests of the European Banking Authority, we document relations between three national cultural traits and bank deposits. The effect of hierarchy and individualism on deposits is stronger (positive and negative, respectively) in domestic banks where culture is more homogeneous compared to global banks. On the other hand, the positive effect of trust on deposits is robust for both domestic and global banks, reinforcing the view that banking is largely based on trust. Results are robust to empirical specifications alleviating endogeneity concerns, thus suggesting a causal effect. Motivated by recent regulatory changes emphasizing the importance of liquidity (deposit) stability, we further analyse the impact of annual bank-level deposit stability on the trust-deposits relation. We show that high deposit volatility is associated with a decrease in the positive effect that trust has on deposit levels.